Supply chain risks linger in Asia

As the world attempts to move on from the depths of the Covid-19 pandemic, lockdowns are a thing of the past in most countries. However, Asia’s biggest economy, China, has continued down its zero-Covid path as it attempts to eradicate the virus. 

In early July, Chinese authorities put 1.7 million citizens in central Anhui Province under lockdown following a spike in cases, a month after locking down millions in the financial centre of Shanghai.

The moves have put China at odds with its neighbouring nations and trading partners, further exacerbating ongoing regional supply chain issues caused by Covid. 

China’s strategy hasn’t just impacted those living within its closed borders — a ripple effect has been felt across Asia, hitting regional and international companies and constraining activity across a range of sectors.

As the Covid crisis refuses to budge, building resilience in supply chains remains a high priority.

Navigating a perfect storm

The ongoing supply chain problems, war in Europe, pandemic and climate change are combining to pose a threat to international companies.

The pandemic continues to prompt unexpected policy measures, hindering the flow of goods and services across Asia. Containers remain unloaded in ports, while a slowdown in the manufacture of microchips will have long term ramifications.

Two years into the Covid-19 pandemic, businesses are urged to focus on supply chain resilience and how insurance can add a layer of protection against global events.

FM Global’s 2022 Global Resilience Index underlined the significant supply chain issues facing Asian countries. It revealed that a number of key manufacturing centres across the continent remain exposed to supply chain risks.

The Index, published in June, reviewed supply chain risks for the first time, and ranked Singapore at the top of the list for supply chain resilience. However, the news was less positive elsewhere in Asia. China ranked 38th, ahead of India, Thailand, Vietnam and the Philippines, according to the Index.

The different regions of China were ranked as the 64th, 71st, and 77th most resilient overall. With no sign of pandemic restrictions easing in the world’s second largest economy, Asian countries may have to live with significant regional supply chain disruption for some time yet.

Check your BI

Todd Wilhelm, head of property & casualty, marine and aerospace for Axa XL in Asia, doesn’t believe that supply chain bottlenecks have begun to unwind across the continent. He says insurance loss costs continue to rise due to supply chain issues.

“As we navigate through the global economic environment, the supply chain issues are more acute and severe for some products or industries, thus giving the perception that some others are unwinding.

“From an insurance perspective, loss costs - both attritional and large - continue to increase as longer lead times are needed to source for appropriate labour and to replace or repair damaged property.”

Faced with ongoing disruption, Wilhelm urges Asia-based risk managers to plan ahead.

“Ensure your business continuity plans are up to date to include availability of spare parts and materials as well as appropriate labour,” he says. “Perceived little things, such as electrical or communication wiring, may be the bottleneck in returning your operations to normal.”

He says companies might benefit from a new inventory management strategy. “Consideration may be given to changing just-in-time delivery of supplies to temporarily increasing supply stock.”

Business interruption insurance remains a key risk transfer tool to navigate supply chain problems. In the current environment, policy extensions can prove worthwhile.

“Risk managers should ensure that they have adequate cover for their business interruption exposures including BI extensions such as Customers & Suppliers cover,” Wilhelm adds.